Consumer disconnect

Reader beware. The University of Michigan's most recent Consumer Sentiment Survey (April 2004) indicated that people feel less hopeful about both current and future economic conditions. These feelings are generally attributed to fuel prices, stock market trends, a relatively stagnant job market, and the conflict in Iraq. I agree. What did the same survey show for March? That consumer expectations

Reader beware. The University of Michigan's most recent “Consumer Sentiment Survey” (April 2004) indicated that people feel less hopeful about both current and future economic conditions. These feelings are generally attributed to fuel prices, stock market trends, a relatively stagnant job market, and the conflict in Iraq. I agree.

What did the same survey show for March? That consumer expectations about current and future conditions were on the rise. Again, these attitudes were attributed to tax returns, stock market trends, some significant growth in jobs, and the conflict in Iraq. And again, I agree.

Let's go back to February. The “Consumer Sentiment Survey” for that month demonstrated an overall decline in consumer attitudes about both current and future economic conditions. The reasons? You're catching on: the price of fuel, stock market trends, lack of significant growth in jobs, and the conflict in Iraq. It should be no surprise by now that once again I agreed with this assessment.

January's survey demonstrated that consumer expectations about economic conditions were rising — for much the same reasons as cited above.

Economists are great at establishing patterns. And by golly, we've got one here. If history is any guide, consumer sentiment is usually a reasonable indicator of the near-term future of our economy. (I'll define near-term as the next six to nine months.) The current pattern indicates that as far as consumer behavior is concerned, we're in for some uncertainty.

But is there a disconnect between thought and action this time around? I think there probably is. In fact, I think there's been a consumer disconnect going on for the past few years.

The name “Consumer Sentiment Survey” implies that whether consumer sentiment is “falling” depends on the kind of pressure people think they're under.

I see three major pressure points: fuel prices, state and local taxes, and concerns about employment. We should be seeing a lid on consumer spending because disposable income is down (result of rising state and local taxes); people have to shift money from “want to have” to “need to have” items (result of increase in fuel prices); and they're concerned about job security.

Higher state and local taxes are in place, but the increases are not nearly as widespread nor as big as was predicted. So no real reason to feel the future is in jeopardy.

The price of fuel going from $1.50 per gallon to $1.80 per gallon diverts about $7.70 a week from “want to have” to “need to have” consumption. My feeling is that if consumers can't find that loose change every week, a fuel-price increase of any amount will lead to less spending in other areas. And that didn't happen. In fact, just the opposite occurred. So I'm not convinced that fuel prices are a major burden on consumers at this point. Something to complain about? Certainly. Something to make me think my future is in jeopardy? Hardly.

The availability of jobs has always been a concern, and rightly so. Even though we are adding jobs, we're adding them very slowly. Which is a problem because we're not a patient society — and we don't like this lingering concern about jobs. But guess what? It's going to be with us for a while.

Let's go out on a limb and take a fact into consideration. Last month, retail sales were up 1.8%. So much for the correlation between consumer sentiment and consumer behavior.

We may see consumer sentiment seesawing between positive and negative outlooks over the next few months. But we'll also see a steady improvement in the economy. Go figure.

TAGS: News
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